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Why Won't Intel Kill AMD?

Intel has handed a large market segment to AMD on a silver platter. Here's why.

You've heard all about Intel(NASDAQ:INTC) killing its only rival, Advanced Micro Devices(NYSE:AMD), in the high-end part of the processor market. Nehalem-class chips are pretty much untouchable in a fair fight, and AMD's Istanbul chips are putting up a fight only by essentially putting more chips into the same processor package.

But it's a very different story in the lower regions. Reviewing AMD's latest slab of budget-friendly processors, longtime industry observer AnandTech noted that AMD is "killing Intel" below the $90 price point. Compared to Intel, the reviewer would take AMD's new three-core chip -- but it's not the best deal AMD can offer. The gaming gurus at FiringSquad concur: "Obviously Intel's willing to concede this business to AMD for the time being," and "you'll just have to pick which value AMD CPU to choose from."

Intel could become more competitive in this space by simply dropping the price of a few strategically chosen processors -- but that has arguably been the case for a while, and Intel ain't going there. In part, I'd imagine that Intel wants to protect its nice, fat gross margins by keeping unit prices on the high end. That strategy also reinforces Intel's image as a luxury brand next to AMD's budget proposition -- a tactic that has worked well for Apple(NASDAQ:AAPL) against cheaper but not always worse offerings from Hewlett Packard(NYSE:HPQ), Lenovo, and Dell(NASDAQ:DELL). Image and branding makes a difference when you're talking about consumers.

Then again, Intel's pricing plans could be designed to keep antitrust regulators at bay. AMD and Intel are playing a high-stakes game of whodunit in courtrooms and government agencies around the world, and Intel would be silly to give its prosecutors fresh ammunition today. Yes, price changes are an everyday tool for every business. That's not important; it's the perception of strong-arming the competition that Intel needs to avoid.

That's how these reviews illustrate one reason why I believe that AMD will be around for years to come. At worst, the company could be buyout fodder for longtime partnerIBM(NYSE:IBM) or hungry multinational giantSamsung, but that's no disaster. Many investors would happily settle for the mandatory buyout premium. And in the meantime, AMD remains unmatched in a high-volume (albeit low-margin) market segment.

That's good enough for me. How about you? Share your thoughts in the comments below.